Cabovisao sale removes overhang from Cogeco stock

Cogeco Cable Inc. shares climbed 5% on Wednesday, after the company finally unloaded its troubled Portuguese division Cabovisao, removing a huge weight from the stock.

“Overall, we see this news as positive from a long-term perspective, as it eliminates overhang from Cogeco Cable’s ownership of Cabovisao and the risk that the company invests free cash flow from its Canadian operations to fund the Portuguese operations,” said Maher Yaghi, an analyst at Desjardins Securities in a note to clients.

Cogeco announced it will sell Cabovisao to Altice Group for €45-million, a substantial haircut from the €465-million Cogeco originally paid for the Portuguese telecom in 2006.

Mr. Yaghi said the transaction generates a “net positive windfall” of $1.20 per share in cash for Cogeco, which previously wrote down its entire investment in Cabovisao.

He continues to value the company based on its Canadian cable operations, and maintained his buy rating and $52 price target.

Philip Huang, an analyst at UBS AG, said investors largely expected the sale of Cabovisao and believes some had assigned a negative value to the company, given its negative free cash flow over the past two years.

Mr. Huang expects Cogeco will use the proceeds to grow its enterprise business and also return capital to shareholders.

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